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Choke Corruption’s Supply-Side

August 2, 2011

The corporate sector must do its part in the anti-corruption war by enforcing norms through peer pressure

He who is without sin, let him cast the first stone”: this biblical admonishment seemed, for many years, to be the guiding motto of most politicians. Now and again there would be allegations, but the extent of mudslinging was limited. Possibly, politicians in the past were more law-abiding; more likely, they realised that all of them were in glass houses. Now, there is widespread and open recognition about the reality of criminalisation of politics. There are few claims of honesty, and the arguments centre around whom and which party is less tainted. “My crime is smaller than yours” is the new defense, and a way of establishing superiority. One result is competitive allegations, with charges flying around fast and thick.

In contrast, the corporate world seems more mindful of advice from the Bible. Even as they compete — often as vigorously as political parties — the bad-mouthing of rivals is limited, and inevitably done on the sly: indicative of its lack of acceptability amongst peers. While this is, in some ways, a positive feature of inter-corporate behaviour, it does raise ethical issues about how the corporate world deals with illegalities within its flock.

Consider the issue of illegal mining in Karnataka. For some time now, this has been a hot topic in the political sphere, with a few political leaders facing considerable fire from other politicians and the media. Now, following the Lokayukta report indicting the chief minister, he has announced his resignation — after considerable pressure, including from within his own party too. Similarly, after allegations and charges related to the 2G spectrum licences, two ministers of the central government have resigned. This was preceded by a great deal of political pressure and media “exposures” about their role. On the other hand, involvement of companies and corporate leaders has received far less media attention and coverage, and there is little or no peer pressure on the organisations or CEOs concerned. For example, the same Lokayukta report — instrumental in the resignation of the Karnataka CM — has named some companies. However, one is yet to see media discussion and exposures about most of them, or any known condemnation from peers.

Some weeks ago, media carried a story about a state minister’s son misusing his father’s position (and official paraphernalia) to pressurise farmers into selling their land to a company. The company in question had apparently hired the son for this role. Yet, there is little discussion in the media about such unethical practices adopted by the company for land acquisition, nor did one read about any criticism by other corporate leaders.

These are but few of the many instances of unethical — even illegal — practices of some companies. Clearly, these are contrary to any basic norms of corporate governance. One wonders if the boards of these companies have taken any corrective actions or questioned those responsible, at least after the public disclosure of improper corporate behaviour.

Undoubtedly, such cases are aberrations, triggered not only by opportunity and greed, but sometimes also by unrealistic regulations and laws. This makes it all the more important to ensure punishment to the deviant delinquents and, thereby, serve as deterrence to others. However, the police have a dismal record of securing convictions and these, too, take forever with the tortuous legal system. One has, therefore, to look for alternatives.

The best — and probably the most effective — means of enforcing norms is through peer pressure. A major reason for pervasive corruption in certain segments is not the lack of laws (in any case, conclusive evidence is often difficult to find), but the breakdown of the social sanction against giving and taking bribes. If, then, corruption is to be curbed, it is as important to focus on societal norms as on creating new bodies or laws. Combating corruption by choking the supply-side and following the best standards of ethical corporate behaviour will require strong internal intent and external peer pressure for each company to attain the highest standards of corporate governance.

It is unfortunate that corporate governance through board action is so slack, and that peer pressure is practically non-existent. Industry captains and associations have a major responsibility, and must be seen as publicly taking a stance against wrongdoers — some thing that one has seen little of so far. As a result, the image of the corporate sector as a whole has taken a beating. While politicians are widely seen as being generally corrupt, the political process itself tends to expose wrongdoing. In addition, the hawk-eyed media, ever looking for “breaking news”, is quick to investigate issues (even at the cost of sometimes tilting at windmills). In the case of companies indulging in corruption (they are, after all, the source for the biggest illegal gratifications), media coverage is far more benign. Internal processes and peer pressure are, therefore, more essential.

It is time directors monitored closely the operations of their company, and boards took greater responsibility to ensure that ethical business practices are actually followed. One expects action, at least following exposures of corrupt deals indulged in by the company. Associations too — most of which now flaunt an ethics committee — need to act, if they are to retain credibility regarding corruption. After all, for individuals and organisations, few things are more effective as a deterrent than the fear of social disapprobation and ostracism. Will company boards, corporate leaders and associations wake up and act before it is too late?

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From → India, Innovation

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